2020 (5) TMI 571 - AT - Income Tax

Penalty u/s 271BA - non- filing of report as required u/s 92E in respect of the international transactions - penalties thus proceed on the basis that there were international transactions that the assessee had with its associated enterprises - HELD THAT - We have held that the Kaybee Exim Pte Ltd, which is alleged to be an associated enterprises of the assessee, is not an associated enterprise of the assessee Once we hold that the assessee and the alleged AE could not be treated as associated enterprises, and there are no other alleged international transactions on the facts of this case, it could not be said that the assessee had entered into any international transactions. As a corollary to this finding, the very foundation of impugned penalties ceases to hold good in law. The impugned penalties, therefore, must be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Correctness of penalties under section 271AA and section 271BA for non-maintenance of requisite records and non-filing of reports in respect of international transactions.
2. Determination of whether Kaybee Exim Pte Ltd (KE-S) is an associated enterprise (AE) of the assessee under section 92A.

Issue-wise Detailed Analysis:

1. Correctness of penalties under section 271AA and section 271BA:
The appeals challenge the orders confirming penalties imposed under sections 271AA and 271BA for the assessment year 2006-07. Section 271AA penalizes non-maintenance of records required under section 92D for international transactions, while section 271BA penalizes non-filing of reports required under section 92E. These penalties presuppose the existence of 'international transactions' between the assessee and its associated enterprises.

2. Determination of whether Kaybee Exim Pte Ltd (KE-S) is an associated enterprise (AE) of the assessee:
The fundamental issue revolves around whether KE-S, a Singapore-based entity, qualifies as an AE of the assessee under section 92A. The Tribunal noted that the assessee's shareholding and directorship in KE-S do not automatically establish an AE relationship unless the conditions in section 92A(2) are satisfied.

Key Findings:

- Previous Tribunal Decisions: The Tribunal acknowledged that earlier decisions in the assessee's own case for prior years had held KE-S to be an AE based on section 92A(1). However, these decisions did not consider the legislative intent behind the amendment in section 92A(2) introduced by the Finance Act, 2002, which clarified that the criteria in section 92A(2) must be fulfilled for two enterprises to be deemed associated.

- Legislative Intent and Judicial Precedents: The Tribunal emphasized the legislative intent reflected in the memorandum to the Finance Bill 2002 and the CBDT circular No. 8 of 2008, which clarified that section 92A(2) restricts the scope of section 92A(1). The Tribunal referred to subsequent decisions, including those in Page Industries Ltd., Orchid Pharma Ltd., and Veer Gems, which aligned with this interpretation and were approved by higher judicial forums, including the Gujarat High Court and the Supreme Court.

- Binding Nature of Higher Judicial Decisions: The Tribunal highlighted that once a higher judicial forum has expressed an opinion, it is binding on lower courts and tribunals. The Tribunal cited the Supreme Court's guidance in Assistant Collector of Central Excise v. Dunlop India Ltd., emphasizing the necessity for lower courts to accept the decisions of higher courts to maintain the hierarchical judicial system's integrity.

- Application to the Present Case: The Tribunal concluded that the relationship between the assessee and KE-S did not meet the criteria set out in section 92A(2), thus they could not be considered AEs. Consequently, no arm's length price adjustments could be made on transactions between these entities, and the penalties under sections 271AA and 271BA lacked a valid foundation.

Conclusion:
The Tribunal allowed the appeals, holding that the assessee and KE-S were not associated enterprises under section 92A, thereby invalidating the penalties imposed under sections 271AA and 271BA. The Tribunal's decision was based on the legislative intent behind section 92A(2), binding judicial precedents, and the principle that higher judicial decisions must be followed by lower courts.